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UK households face enormous £43bn hit after Russia's invasion of Ukraine

Chancellor Rishi Sunak during a media briefing in Downing Street, London, on Coronavirus (COVID-19). Picture date: Tuesday March 17, 2020. See PA story HEALTH Coronavirus. Photo credit should read: Matt Dunham/PA Wire
The Institute for Fiscal Studies (IFS) said chancellor Rishi Sunak would need to find £12bn to provide the degree of protection against higher prices he intended back in February with his controversial and partially repayable "Energy Bill Rebate" scheme. (PA)

Soaring energy prices triggered by Russia's invasion of Ukraine are set to exacerbate Britain's growing cost-of-living crisis.

Experts at the Institute for Fiscal Studies (IFS) have warned that the economic hit to UK households could top £40bn in the coming months, a staggering level that will place the Government under pressure to provide more support to under-pressure families.

Putin's decision to invade has upended energy markets with oil prices soaring amid concerns over supplies - Russia is the world's largest exporter of oil.

The UK has said it will phase out Russian oil imports by the end of 2022, while the US is banning the import of all oil and gas and the EU has said it will phase out the bloc's dependency on Russian gas, oil and coal by 2027.

Read more: Middle-income households could face worse economic hit than financial crash

Europe relies heavily on commodities from Russia and Ukraine, with Ukraine being the continent's biggest wheat supplier and Russia providing almost 40% of Europe's gas.

And, while Russia only provides around 3% of the UK's gas, it supplies up to 40% of Europe's - meaning any disruption to this will have a knock-on effect on the wholesale cost for British consumers.

Two weeks ahead of Rishi Sunak's Spring Statement, the IFS has now revealed the extent to which the rocketing price of gas could impact households.

"Rises in energy prices since the Russian invasion of Ukraine could increase the hit to households to around £43 billion, meaning that the Chancellor’s £9 billion package would now offset only about one fifth of the rise in household energy bills," the IFS said.

It added: "In terms of household budgets, just to provide the degree of protection against higher prices he intended back in February, Mr Sunak could need to find more than £12 billion on top of the £9 billion already committed."

A member of Ukrainian emergency services works amid rubble, as Russia's invasion of Ukraine continues, in Chernihiv, Ukraine, March 9, 2022. Picture taken March 9, 2022. State Emergency Service of Ukraine/Handout via REUTERS THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT
A member of Ukrainian emergency services works amid rubble, as Russia's invasion of Ukraine continues, in Chernihiv, Ukraine, March 9, 2022. (State Emergency Service of Ukraine/Handout via Reuters)
A baby is carried as people flee near a destroyed bridge to cross Irpin River as Russia's invasion on Ukraine continues, in Irpin outside Kyiv, Ukraine, March 9, 2022. REUTERS/Mikhail Palinchak
A baby is carried as people flee near a destroyed bridge to cross Irpin River as Russia's invasion on Ukraine continues, in Irpin outside Kyiv, Ukraine, March 9, 2022. (Reuters)

The chancellor announced a partially repayable "Energy Bills Rebate" scheme in February, worth £350, to help support households grappling with soaring energy bills after Ofgem put up the energy price cap by 54% to £1,900.

However, just a month later, some have warned that the typical energy bill could now surpass £3,000 by the end of the year - with growing calls for Sunak to use his Spring Statement on 23 March to announce a new series of economic interventions.

In response to the IFS analysis, a Treasury spokesperson said: “Russia’s devastating invasion of Ukraine will have a huge impact on lives and livelihoods around the world and the effects will be felt across this country.

“It is right that we do all we can to show solidarity with the people of Ukraine and work with our allies and partners to impose the most punishing sanctions to inflict maximum and lasting pain on Russia.

“We are already providing support worth over £20 billion to help people with the cost of living and we will continue to monitor the economic impact of the conflict.”

Read more: 'Extraordinary' warning energy bills may go much higher than £3,000

Labour has called on the Chancellor to scrap planned rises in National Insurance and for a windfall tax on oil and gas.

"The government has allowed the cost of living crisis to spiral out of control since September - and now will make it even worse with an unfair tax hike," said shadow chancellor Rachel Reeves.

"The Conservatives should halt their National Insurance hike in April – and they must look again at Labour’s proposal for a one-off windfall tax on oil and gas producers to cut household energy bills by up to £600."

Watch: Ukraine war: Cost of living squeeze set to intensify as conflict adds to energy price spiral